Joint Venture in China

- Topic Joint-Venture chinaw be Wall Panelling Once a extraneous investor is put into the mix, a wealth of legal, administrative or operational violations that a solely-owned Chinese firm may give been able to survive with, lead most likely not be tolerated by the local regimen (Devonshire-Ellise & Hoffman, 2010 Norris, 2011). Therefore an array of legal and stuffual issues may come up for which a external party should be prepared. Some of these are kayoedlined below.Environmentally prosperous Wall Panelling - As the product involved is classed as build materials the comp whatsoever should make note of Austrades guidelines on indus test standards for make materials in chinaware (Austrade, 2012). For this environmentally friendly besiege panelling the GB/T 50378-2006 regulations leave behind apply (GCiS, 2012). The Issue of Stabilisation - protective covering measures should as well as be stipulated through with(predicate) the creation of a Joint-Venture Contract.O ne of the biggest issues may be run aground through the variety in constabularyfulness between china and Australia chinaware having civil law and Australia having parking area law. Therefore in order to bedevil the Joint-Venture contract nurtureed from future changes in the Chinese civil law system a stabilisation clause is highly recommended (Coale, M. T. B, 2001-2002). Types of Joint-Ventures in china What makes the packion of a joint-venture so important is that even though chinas Choice of virtue groomings follow inter guinea pig practices this doesnt apply for Joint-Ventures.The only m a impertinent party indoors a Joint-Venture may have a choice of law is when subsidence battles (Gao, 1989, p. 560 Wei, 2000, p. 40 Sino Foreign Joint-Venture constabulary Article 2). Types of Sino-Foreign Joint-Ventures in mainland China meet to addition 1. Equity Joint-Venture (EJV) An equity Joint-Venture in China takes the form of a limited liability company (JVL Article 4 and Article 2 RICJVL Kluwer virtue worldwide, 2005 Nee, O. D, 1992, 83-101). In this symbol of Joint-Venture two parties contri bute to the registered capital and risks scratch and losses are all taken in regards to the proportion of that contribution.Four elementary attributes (Kluwer Law foreign, 2005 Wei, 2000, p. 74-75) 1. Established in accordance to the law of the Peoples Republic of China. 2. Necessary station or Capital 3. Possesses its own name, social organization and premises 4. Assumes civil liability independently. Cooperative (Contractual) Joint-Venture Creating Chinese legal individual (CJVCJP) Also a limited liability company which assumes responsibilities for the ventures total assets save crumb have a separate internal arrangement on debt liability of each party (Articles 11,12, 14 of RICJVL Wei, 2000, p. 5-76). The structure and status of this type of venture is a sens more flexible than for EJVs, with precise aspects existence able to be defined by contract (Kluwer Law International, 2005 Nee, O. D, 1992, 83-101). It besides has liberty of negotiation of product or profit distribution manner while hushed being a separate legal soul with the parties liability limited to their capital contributions (Article 14 of RICJVL China Business Law Guide, 2005 Cooperative Joint-Venture Law and Cooperative Joint-Venture giveing Law).Cooperative (Contractual) Joint-Venture Not Creating Chinese Juristic soulfulness (CJVWCJP) Does not create a Chinese juristic person (Article 52 of RICJVL) and parties take unlimited liabilities for the debts of the Joint-Venture jointly and severally. All investments are administered in a unified manner and consent is needed for the disposing of a partys investment (Nee, O. D, 1992, 83-101). - It has loose structure, high risk and low degree of check stunned and cooperation (Nee, O. D, 1992 Wei, 2000, p. 176). -As all Chinese JVs are controlled chthonic the P. R. C law (Article 5 of the Foreign sparing Contract Law (FECL) Lewis, 1996, p. 31 Wei, 2000, p. 73), the ability to create their own contractual clauses and have more exemption in the contractual intercourseship is necessary, especially in regards to topics such as sharp property that is why a Contractual Joint-Venture Creating Chinese Juristic Person is the best choice. Also, in relation to management and liability and the toil of manufactured secures this type of Joint-Venture is ideal (China Business Law Guide, 2005 Gomes-Casseres, 1990 Wei, 2000, p. 68). The Issue of apt Property From the 6th China International smart Wall-Building Materials, Equipment and technology show held in Beijing in May 2012, it target be seen that special K building is becoming increasingly popular in China (GCiS, 2012). In fact the 12th Five-Year Plan states that by 2015, at least wiz billion of these should be built with eco-friendly building materials, and by 2020, green buildings forget account for more than 30% of new co nstruction (ACBW, 2012 attachment 6 GCiS, 2012).However, with this novelty in green building rising and a pot more foreign producers developing products and engine room in China so comes the problem of protecting dexterous property. Intellectual property shelter is congenerly new in the Peoples Republic of China but its importance elapses to rise (Wheare, 1998, p. 1) and it is often cited as an issue of concern for foreign parties in China (Ding, 1997 Liesch & McGaughey, 2000, p. 1 Massey, J. , 2006-2007 Vanhonacker & Pan, 1997). Traditionally the concept of protecting intellectual property did not have a fortified hold in Chinese culture (Wei, 2000, p. 9), but Chinas reformation of its national IP system to comply with the international standards set out through the WTOs heap Related Aspects of Intellectual Property Rights (TRIPS) transcription has been a leap for the development of Chinas view in regards to intellectual property (Wheare, 1998, p. 1). However, despite Ch inas accomplishments in IP bulwark and indications it will not become a haven of piracy it hushed considered one of the most risky places to do business (Folsom & Minan, 1989, p. 792 Liesch & McGaughey, 2000 p. 2).This is due to its relative novelty in the Peoples Republic making definite segments of the population have only a rather vague cause of the concept (Cohen et al. , 1996, p. 7). In the P. R. C the problem isnt that they dont have laws regulating IP protection. In fact they have laws for the protection of Patents, Copyright Infringement and Trademarks. However, the problem comes when trying to implement these laws (Yuan, 2004, p. 1) as Chinese civil enforcement procedures make it very difficult to protect high technology overts (Appendix 5 Kennedy and Clark, 2006 Zhang 2010 7).In addition an interesting fact to note is that Peoples court may accept oral designate but in practice they rarely accept or put weight on this type of evidence (Kennedy and Clark, 2006). There fore, when dealing with foreign parties it is important to develop and implement a comprehensive strategy for protecting their technology interests (Greguras, 2007, p. 3 Norris, 2011, p. 58 Wheare, 1998, p. 159). If it is assumed this wall decorate company has already patented their product in Australia, under Australias Patent law the patent will last for 20 years (ALRC, 2012).As the product is already being produced in Australia it cant be patented in China. However, as China is part of WTO and is a signee on the TRIPS intellect, in that respectfore they are politically and virtuously bound to recognise the Australian patent (ALRC, 2012 Article 27. 1 of TRIPS Agreement WTO 2012). As the producers in China will need to have the work enjoy-how for the wall paneling, therefore there is risk of intellectual property theft. To try and protect the IP a licence promise for technology graft could be considered.When setting up a technology transfer agreement, the Technology Transfe r Regulations as stipulated in the China Laws for Foreign Business outlines in Article 2 six ways of technology acquisition (Appendix 2 Kluwer Law International, 2005). - If licensing is chosen for the transfer of the patent and its technology in the Joint-Venture the mutual licensing agreement is 10 years. However this is usually permitted to extend to the life of the Joint-Venture (Lewis, 1996, p. 67). The agreement involved will allow the Chinese producers to use the technological know-how with it go to the licensor (the Australian side) once the Joint-Venture is conditioninated. However it must be noted that the worldwide consensus in China is that technology and know-how belong to the licensee at the end of the term and the licensor should not be able to restrict the licensee in its use of this schooling (Jianhua & Williams, 1998, p. 167 Lewis, 1996, p. 167).Therefore despite many ways one can try and protect IP in China, the most important factor is to carry out due dilig ence and make sure that the knowhow has been protected as good as possible. The Issue of dissension Resolution Due to a difference in legal system, cultural values and business practices, China can be seen as a high risk business environment. In the flake of any disputes a comport and understandable dispute colony method and clause should be formed and include in the Joint-Venture contract (Wei, 2000, p. 154).It is crucial for JV parties to specify dispute effect methods, applicable law and venue for resolving disputes (Chan & Suen, 2005). Under the law of the P. R. C, Sino foreign Joint-Ventures are allowed to select applicable law and the venue for the dispute reply in their contractual clause and Chinese law is only an option in this case (Dobkin, 1988, 79-80 FECL 1985 Lewis J. 1996, p. 256 Wei, 2000. p. 156). However Article 25 of the Law on Sino-foreign Cooperative Joint-Ventures (2005) provides that if a dispute arises, the dispute should be in first instance colonized t hrough friendly acknowledgments to the extent possible.If such consultations fail and so the dispute may be settled by arbitrament or be referred to the Peoples Court (Lewis J. 1996, p. 255) Therefore it is recommended that in light of any breaches of contract or party disputes the first step should be negotiation. dialog is not legally binding and can preserve the guanxi between both parties, whilst being the cheapest ADR method (Cheung and Suen, 2002 Dimatteo, 2003 p. 109). Also given the law states that friendly consultation should be the first step it should be the first method tried.However if not successful a relevant arbitration can be included in the contract. The P. R. C has a flexible approach regarding dispute resolution and it can take place in China or afield according to Chinese rules or an international arbitration body (Lewis, 1996, p. 256). However, for this wall paneling company it is still recommended to have the arbitration carried out in China as cost is lo wer and it is more convenient and is enforceable (Dimatteo, 2003, 109). Many parties scared of using mainland Chinese arbitration rules have immovable on arbitrating in Hong Kong.This is a great option for the wall paneling company as Hong Kong has adopted the UNCITRAL model law on arbitration and is considered an international arbitration centre with highly developed infrastructure (Brandt & Tomson, 2012, p. 18 Dobkin, 1988, 79-80 HKIAC, 2004). In addition, Hong Kong will able to give better advice on foreign related matters in English making the process a lot smo another(prenominal) (Lewis, 1996, p. 257 Srivastava, 2002, 197). A possible dispute resolution clause that could be included in the contract can be viewed in Appendix 3. -If Arbitration still has not produced any results litigation can be considered (Wei, 2000, p. 154) but in China it is usually viewed a s a last resort due to possible bias present in the courts and due to court proceeding being very lengthy and pricy a nd its also difficult to find lawyers competent to advise on foreign matters in English. Usually foreign parties will endeavour to hold back their disputes are re resolved without Chinese courts as they are still unconfident because of the inform local protectionism (Bersani, 1994 Chan, 1997) The Issue of Language -Which language should be used in the Joint-Venture contract? When dealing with foreign parties there can sometimes be large language barriers. This problem can often be solved by having a clear language agreement stipulated in the contract. It is common practice to have the contract in both acting languages. Although this can be rather expensive, it may avoid some major problems that could arise in the future (Lewis, 1996, p. 31). The Issue of Termination Chinese parties may be averted to agreeing with the public and formal ending of a Joint-Venture, not wanting to talk over the end before even beginning (Xu, 2008).However, sometimes, as the Chinese verbal expression g oes, the foreign party might find themselves in the same hunch forward as the Chinese but with different dreams. This is why a exit clause is very important. Despite the conventionality of this clause, it is still a rusty area the general practice is that foreign investors buy their way in and then buy their way out if the situation turns bad. Chinese parties have been known to play corporate blackmail with foreign investors as to dummy up potential exit of the foreign party or to hold them credible for all losses (Xu, 2008).A Joint-Venture contract should have a detailed solvent clause which outlines the events allowing parties to terminate their involvement. It should also state the duration of the Joint-Venture. (Dimatteo 2003) Some railway yard for termination are as follows (Lewis, 1996, p. 257) 1. Expiration of the Joint-Venture term 2. inability to continue trading operations due to heavy losses 3. Inability to continue operations due to the failure of one of the con tracting parties to fulfill its contractual obligations 4. Inability to continue operations to heavy losses caused by force majeure or 5.Inability to attain the desired objectives of operations and the lack of future for development. Some other terms that may be included are set out in Appendix 4. *It is proposed that the tenure for this Joint-Venture should be set at an fascinate time so as to avoid the transfer of intellectual property. This time should be before the patent protection runs out and before the licensing agreement runs out. AppendicesAppendix 1 Business Structures in China (Yuwa Wei, 2000, Investing in China. p. 169) Appendix 2 China Business Law Guide 2005 a) The assignment of patent rights b) The assignment of the rights to apply for patents c) The licensing of patent exploitation d) The assignment of technical transcendentals e) The provision of technical services and f) Other forms of transfer of technology. Appendix 3 Dispute Resolution Clause In the event of any dispute arising under this contract, the parties shall first make all necessary efforts to settle the dispute through friendly consultation.If it is impossible to settle the dispute in this way then the matter shall be submitted to arbitration before the Hong Kong International Arbitration eye (Lewis, 1996, P. 255). Appendix 4 Grounds for Termination (Frenkel, 1998) 1. Failure of a instrumentalist to make require capital contribution 2. Failure of a participant to obtain necessary government approvals 3. Failure of the venture to reach a pre-agreed level of profitability 4. Management deadlock 5. Failure of one married person to purchase the shares of another. (Buy-Sell agreement) 6. An adverse and debilitating change in the law 7.Bankruptcy or insolvency of the Joint-Venture. In relation to IP even if there is a clear termination clause and licensing agreement relating to the breach for the use of IP and know how as mentioned before the general consensus in China is that l icensed IP will be able to be used once the license agreement has ended by the licensee. This means that despite efforts to protect IP, there is still a possibility of a breach and this should be tacit as Chinas cultural view is different and they still have a developing legal system in relation to this problem. Appendix 5 Key Issues in Enforcing IP Law (Kennedy, G. group A Clark. D, 2006) The key issues are 1. urbane procedure law puts a strong burden on plaintiffs to prove their case. There are no rules specifically shifting the burden of proof if a plaintiff makes out a prima facie case. This can make it very difficult to prove that a high technology patent has been infringed, or a trade secret has been misappropriated. (Article 125, Contracting Law) 2. There is no discovery in civil proceedings. Parties are only required to submit evidence that assists their case. Without discovery, it can be exceedingly difficult to prove a case. Article 125, Contracting Law) 3. Oral evidenc e is very rarely accepted in civil proceedings (63 and 72 of Civil Procedure Law) oral evidence of misbehaviour by an employee will thus be very hard to use. Appendix 6 pass judgment Growth of China super acid Buildings (MOHURD, GCiS). Reference List 1. Austrade, 2012, Building Materials to China, gettable at . Accessed on 22/10/2012. 2. Australian Business assemblage (ACBW), 2012, China to Boost construction of Green Building. May 7th. purchasable at . Accessed on 23/10/2012. 3. Australian Law Reform electric charge (ALRC), 2012, Duration of Patent Protection, Australian Government. Available at . Accessed on 25/09/2012. 4. 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